Article Type: Article
De(Coding) The Indian EdTech Sector
Arbitral Bias
Key takeaways from the new labor codes
10 key takeaways from Companies (Amendment) Act, 2020
Authored by Sunando Mukherjee, Partner & Shruti Sundararajan, Associate
Continuing with Government of India’s recent spate of reforms meant to bolster economic activity and investment in the country, the Companies Amendment Bill, 2020 was introduced to amend the Companies Act, 2013 (Act) with the intent of improving the ease of doing business in India, de-criminalizing various minor offences and regulating producer companies, amongst other aspects. This Bill received the President’s assent and was notified in the official gazette as the Companies (Amendment) Act, 2020 (Amendment) on September 28, 2020, and will come into effect on such date(s) as may be notified by the Central Government.
Key changes in this Amendment are enumerated here below:
- De-criminalization of minor offences: By way of the Amendment, imprisonment as a consequence of contravention of certain provisions of the Act has been done away with for over 46 offences under the Act, in addition to reducing, modifying and omitting the fines/penalties for these offences. By way of example, imprisonment has been removed as a punishment for contravention of provisions in relation to buyback of securities, disclosure of interest by directors, financial statements and Boards’ report, formation of companies with charitable objects, disqualification of directors and constitution of audit, stakeholder relationship and nomination and remuneration committee. Similarly, penalties and fines have been omitted/modified/reduced for contravention of provisions in relation to filing of annual return with Registrar, variation of shareholder rights, transfer of securities, alteration of share capital and reduction of share capital, among others.
- Definition of listed companies: Prior to the Amendment, a company with ‘any of its securities listed on a recognised stock exchange’ was qualified as a listed company and resulted in such companies having to comply with the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) in addition to compliances under the Act. The Amendment, however, empowers the Central Government to exempt certain class of companies and securities (which are yet to be prescribed) from being considered as a listed company, in consultation with the Securities Exchange Board of India (SEBI). This exclusion of certain class of securities will ease the burden on companies from rigorous compliance and procedural requirements under the LODR and the Act.
- Foreign listing: Pursuant to the addition of a new sub-section to Section 23 of the Act, certain classes of public companies incorporated in India, as may be prescribed by the Central Government, are permitted to issue securities for listing on stock exchanges in permissible foreign jurisdiction, without requiring compulsory listing in India. The Central Government is also empowered to exempt such class pf public companies from complying with certain provisions of the Act, namely, provisions relating to private placement and public offer of securities, beneficial ownership, share capital and debentures or punishment for failure to distribute dividend, by way of issuing a notification, which has to be placed before both Houses of Parliament.
- Declaration of Beneficial Ownership: As per the previous norms under the Act, persons holding beneficial interest in the shares of a company are required to submit declarations to this effect and the company is required to file returns with the Registrar intimating such beneficial ownership. The Amendment empowers the Central Government to exempt, unconditionally or subject to conditions, certain classes of person(s) from the aforesaid requirements if it is considered necessary to grant such exemption in the public interest.
- Periodic financial results: Section 129A of the Amendment empowers the Central Government to require a certain class of unlisted public companies (which is yet to be prescribed) to prepare periodic financial results. Such periodic financial results are in addition to preparation of annual financial results prescribed under the Act and would need to be approved by the Board of Directors and audited (or subjected to a limited review) by the statutory auditors, in addition to filing periodic financial results with the Registrar. This requirement appears to have been introduced in alignment with similar provisions prescribed for listed companies under the LODR. Given that certain class of public companies will be permitted to list their securities in foreign jurisdictions, without listing on Indian stock exchanges, it is no surprise that the Amendment imposes an additional requirement on unlisted public companies to prepare periodic financial results thereby allowing the Central Government or the Ministry of Corporate Affairs (MCA) to keep a close watch on the functioning of such companies on a periodic basis and not just on an annual basis as per existing provisions of the Act.
- Reduced timelines for rights issue: Previously, as per the provisions of the Act, in case of a rights issue by a company, the offer period was required to remain open for a period of at least 15 days with an exemption granted to private companies for reduction in offer period subject to approval of 90% of its shareholders. The Amendment seeks to reduce the existing timeline of 15 days and empowers the Central Government to prescribe a timeframe of less than 15 days for the rights issue offer period. This will allow companies a quicker access to funds, without requiring the approval of majority shareholders.
- Reduced timeframe for rectification of name and powers granted to the Central Government thereunder: Prior to the Amendment, if the Central Government is of the opinion, on an application made to it by a registered proprietor of a trademark, that the name of a company is identical with or too closely resembles an existing trade mark, the company is required to change its name within a period of 6 months from date of directions issued by the Central Government in this regard. The Amendment now reduces this timeframe to 3 months. Additionally, Central Government is now empowered to allot a new name to the company (manner to be prescribed) if the company defaults in complying with directions issued by it and the Registrar is entitled to enter such new name in the Register of Companies in place of the old name and issue a fresh Certificate of Incorporation with the new name, which the company must use thereafter. However, none of the above changes restrict a company from subsequently changing its name, in accordance with the provisions laid down in the Act.
- Corporate Social Responsibility (CSR): Pursuant to the Amendment, companies that have spent an amount in excess of the requirements prescribed under the Act (i.e., at least 2% of the average net profits of the company made during the 3 immediately preceding financial years) are now permitted to set off such excess amount in succeeding financial years as may be prescribed by the Central Government. Further, companies that are not required to spend more than INR 50,00,000 towards CSR under the provisions of the Act, are now exempted from constituting a CSR Committee and the Board of Directors may discharge the functions of such Committee.
- Exemption to NBFCs: Under the Act, a banking company is exempted from filing the resolutions passed to grant loans or give guarantee or provide security in respect of loans in the ordinary course of its business, with the registrar. The Amendment extends such exemption to a registered non-banking finance company and a housing finance company.
- Remuneration of Independent Directors: Prior to the Amendment, in case of inadequate profits, only executive directors/managing director of a company were entitled to receive remuneration subject to limits prescribed in the Act. The Amendment seeks to align the aforesaid provisions to independent directors/non-executive directors to the effect that in case a company has no profits or its profits are inadequate, then non- executive directors, including an independent director, will be entitled to receive remuneration up to the extent permissible under the Act.
Conclusion
The benefits of amendments with to respect overseas listing, scope of listed companies, beneficial ownership and other aspects will be tested once the Central Government notifies and prescribes corresponding rules in this regard. Needless to state, de-criminalization of menial offences revolving around procedural requirements and having no negative impact on the public interest will definitely go a long way on easing the burden on corporates from being criminalized for offences that are a product of inadvertent lapses and minor non-compliances with no intent to defraud the authorities or the public at large. All in all, this is a welcome move towards India’s goal to improve the ease of doing business in the country.
Understanding e-contracts
Authored by Harsh Arora & Raj Nandini
The term ’contract’ is defined under Section 2(h) of the Contract Act, 1872 (Contract Act) as an agreement enforceable by law. Although, Contract Act does not specifically provide for electronic contracts (e-contracts), it does not prohibit them per se. Like any other form of contract, an e-contract is also primarily governed by provisions of section 10 of Contract Act. The essential elements required for validating an e-contract set out under Contract Act are as follows:
▪ Lawful offer and acceptance
▪ Lawful object
▪ Lawful consideration
▪ Free consent
▪ Parties to be competent to contract
▪ Intention of parties to create legal relationship
▪ Not expressly declared to be void, it will meet the test as a valid and binding contract
Therefore, an e-contract cannot be validly executed unless it satisfies all the essentials of a valid contract, as prescribed under the Contract Act. In Trimex International FZE Ltd, Dubai v. Vendata Aluminum Ltd, the Supreme Court (SC) held that a contract entered into between the parties that was unconditionally accepted through e-mails
Some of the pertinent aspects of e-contracts are as follows:
- Recognition of e-contracts under the IT Act: Section 10A of the Information Technology Act, 2000 (IT Act) deals with validity of contracts formed through electronic means and states that if in a contract formation, communication and revocation of proposal/acceptance are expressed in an electronic form or by means of electronic records, it will not be considered as unenforceable solely on the ground that electronic form or means was used for that purpose. For any contract to be valid, signatures of parties to contract are required to showcase acceptance of terms and conditions of contract. In case of an e-contract, an electronic signature comes to play.
Additionally, Section 4 of IT Act provides legal recognition to electronic records and states that where any law which requires information or matter to be in a written or printed form, then such requirement will be deemed to be satisfied if the information or matter is available and accessible in an electronic form. As per the second schedule of the IT Act, the following documents cannot be executed in the electronic or digital form and needs to be executed in a physical form in order to be valid and enforceable before the court of law:
– Negotiable instruments (other than cheques) as defined under the Negotiable Instruments Act, 1881
– Power of attorneys as defined under the Powers of Attorney Act, 1882
– Trusts under the Indian Trusts Act, 1882
– Wills/testamentary dispositions as defined under the Indian Succession Act, 1925
– Any contract for sale/conveyance of immovable property or any interest in such property - Recognition of e-contracts under the Evidence Act: Under the Evidence Act, 1872 (Evidence Act), an e-contract has the same legal effect as a paper-based agreement. It may be noted that the term ‘evidence’ has an inclusive definition in Section 3 of the Evidence Act as including all documents including electronic records produced for the inspection of the Court being termed as documentary evidence. Section 67A of Evidence Act is pertinent in respect of the loan and financing documents wherein, apart from secure electronic signature, proof of the electronic signature of the subscriber needs to be proved which may be done through testimony of the subscriber himself. Delhi High Court in case of State of Delhi v. Mohd. Afzal and Ors held that, ‘Electronic records are admissible as evidence. If someone challenges the accuracy of a computer evidence or electronic record on the grounds of misuse of system or operating failure or interpolation, then the person challenging it must prove the same beyond reasonable doubt’. In Harpal singh and Ors. v. State of Punjab, SC has reiterated that any electric record in the form of secondary evidence cannot be admitted in evidence unless the requirements of Section 65B are satisfied.
- Recognition of e-contracts under the Indian Stamp Act, 1899: There is no specific provision in Indian Stamp Act, 1899 (Stamp Act) that specifically deals with electronic records and/or stamp duty payable on execution thereof. ‘Instruments’ are defined under Stamp Act as ‘includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or record’. While a majority of State specific stamp duty laws do not specifically include electronic records within their ambit, Maharashtra, Rajasthan and Gujrat (governed by State-specific stamp laws) have amended the term ‘instrument’ to include electronic records as defined under section 2(1)(t) of IT Act and widened terms ‘signed’ and ’signature’ to include signing and execution of an electronic record as defined under section 11 of the IT Act. Additionally, States of Karnataka, Uttarakhand and Uttar Pradesh have only amended the term ‘instrument’ to include electronic records as defined under section 2(1)(t) of IT Act. Therefore, it is observed that the stamp laws applicable to the aforementioned states recognize ‘execution’ of an electronic record, thereby making a valid e-contract also liable to payment of stamp duty. The Indian Stamp Act (as applicable in States which do not have any State-specific stamp law) does not provide for stamping of electronic documents or e-contracts. It may be noted that in case of any inter-state transactions, state laws provide for levying differential stamp duty should the document first be executed in another state with lower stamp duty but brought into the former state. Further, a few state laws also prescribe that even photocopies and electronic records of documents brought into the state will attract differential stamp duty. Hence, it is recommended that the parties calculate the stamp duties that are payable in the relevant states and consequently stamp the e-contract with the highest stamp duty.
Electronic execution of the contracts: There are several options available for parties to execute the contracts electronically, some of which are listed below:
– Digital signatures: Parties may obtain secure digital signatures with a digital signature certificate issued by a licensing authority. Such a Digital Signature is considered as a secure electronic record under IT Act and Evidence Act. In a proceeding involving a ‘secure’ electronic record, court presumes, unless contrary is shown, that such record has not been altered since specific point of time to which secure status relates. Except in case of a ‘secure’ electronic record i.e. one signed using a Digital Signature, no automatic presumption relating to authenticity and integrity of electronic record will be made by courts and any other type of e-signing will need to be proved in a court of law.
– Sharing scanned copies of wet ink signed contracts: The Parties may consider executing a contract by way of circulation. In this scenario, the legal counsel prepares execution versions of the contract to be signed amongst the parties. Each of the parties to the contract shall be required to confirm by email that they are agreeable to the contract. Thereafter, each of the parties shall print the signature page of the contract, affix its signature,
scan the same and then send it back to the legal counsel for collating and verification.
– Email conveying acceptance of a contract: The Parties may also choose to exchange confirmations of acceptance of contracts by email exchange attaching the unsigned contracts. It is pertinent to note that whilst such a contract is enforceable, the risk lies in proving due execution in case this is challenged by the counterparty. Therefore, parties need to ensure that the language of the email conveys acceptance. The use of secure, tamper-proof encrypted email transmission and storage systems should also be ensured to mitigate the risk of a party disclaiming the attachment (i.e. the contract) to the email confirmation.
– Other electronic signatures: Once the contract is finalized in the electronic form (e-contract) post negotiations, the parties may also consider executing the contract by way of electronic signature (e-sign). Under the IT Act, it means authentication of any electronic record by means of: (i) digital signature; or (ii) the electronic technique specified in the Second Schedule of the IT Act. The latter specifies e-sign based on Aadhaar (12-digit identification number issued by the Unique Identification Authority of India) e-KYC services (Aadhaar e-sign). Aadhaar e-sign allows an Aadhaar holder to render its signature electronically through third-party applications. Further, such third-party applications maintain an audit trail that captures every alteration to the e-contract to which the Aadhaar e-sign has been affixed to. The parties need to ensure that the security and integrity of the transmission and storage system is not compromised.
Due to the nature of the systems and the networks that businesses employ to conduct e-commerce, parties may find themselves liable for contracts which technically originated with them but, due to programming error, employee mistake or deliberate misconduct were executed or were released without the actual intent or authority.
Impact of covid-19 on project finance and banking transactions
Authored by Amit Ronald Charan and Anshita Kaur
Industry has been struggling to cope with the ongoing economic slowdown despite fiscal, monetary and other support from the government. Reduced availability of capital has impacted several industry sectors, one of which is infrastructure. The characteristics of this sector such as being capital intensive, suffering regulatory risk and making only average returns have significantly added to its challenges. The development of many infrastructure projects has stalled, and even operational ones have seen declining revenue streams. This has an adverse effect on the ability to service the debt of existing loans. If projects are under construction and loans have not been fully drawn, lenders may refuse to release balances because of draw-stop events which typically include an event of default or potential default, an actual or forecast funding shortfall and delays in construction. The sector faces widespread payment issues from counterparties under project contracts.
To address these liquidity challenges, the government and the Reserve Bank of India (RBI) have taken initiatives such as the Atmanirbhar Bharat Abhiyan (self-reliant India mission), moratoriums and various economic relief packages. While these measures are generally appropriate, their effective implementation will be decisive in successfully overcoming problems. It is vital that banks support the goal of economic revival by supporting the government and RBI’s measures. An overcautious approach will defeat the objectives behind the economic incentives and may cause the collapse of viable businesses. In conducting credit appraisals, lending institutions must do so with precision, balancing them against the objectives of the relief measures of the government and RBI. However, even if liquidity is provided to viable businesses and projects through the relief measures of the government and RBI, the borrowers may not be able to complete projects because of the unavailability of labour and raw material, disruptions to supply chains, outbreaks of the pandemic at work sites etc. Resulting cash flow issues may result in defaults and an increase in non-performing assets, which will cause lenders to initiate resolution plans and restructuring of loans.
The recovery of loans through enforcement of securities and guarantees enforcement is possible. However, the crisis has led to sharp declines in the prices of listed stocks, pledged securities, immovable property and a significant drop in the net worth of corporate and personal guarantors, resulting in depletion of security cover. In Rural Fairprice Wholesale Limited and Anr v IDBI Trusteeship Services Limited and Ors, the high court passed an interim order restraining lenders from enforcing pledged securities as enforcement would cause irreparable loss to the obligors consequent to the steep price drop due to the covid-19 crisis. Lenders are therefore left with little recourse. There is also a temporary suspension for a period of six months of initiating proceedings against a corporate debtor under the Insolvency and Bankruptcy Code, 2016, for any default arising after March 25, 2020. To address the defaults due to covid-19 related stress, RBI has taken a right initiative by formulating a resolution framework, notified on August 6, 2020 so as to enable the lenders to implement a resolution plan, in respect of eligible borrowers without change in ownership while continuing the account status as standard, subject to specified conditions.
The lockdown highlighted execution challenges even where businesses were able to get the loans sanctioned. Getting documents stamped, notarized, obtaining approvals from government authorities, the requirement for the physical presence of parties and registration of documents and so on have become cumbersome, given social distancing protocols, the reduced number of available officials and the closure of offices from time to time.
The present crisis has however united all stakeholders involved in financing transactions in calling for complete digitization of financing transactions such as the processing of loan applications and credit appraisals, and the execution, stamping, notarization, and registration of documents. As social distancing will be the new normal, there is an urgent need for amendments to relevant legislation to enable transactions to be executed digitally, with stamp duty payments and registration being made from the safety of homes and offices and the standardization of stamp duty rates and registration fees across states.
In order to bring about the resurgence of the sector and to mitigate the risk of disruption, banking transactions must be streamlined, run efficiently and adapt to the demands of macroeconomic dynamics. There should be immediate legislative amendments to keep banking, businesses and the economy going as they should do and to overcome the present crisis.
Beware Observers and Nominee Directors
Authored by Bharat Sharma, Partner & Krishaal Morjaria, Associate
Shareholders and investors require visibility on the day to day management of a company in which they hold economic interest. The same holds good for lenders with respect to the affairs of the borrowing company. To ensure control and supervision, clauses providing for the appointment of observers and nominee directors on a company’s board are commonplace in transaction documents today. The observer is often a predecessor of the nominee director. Since the observer is appointed post-signing but before the consummation of a transaction, once the transaction is consummated, his role ends and the role of the nominee starts. It is thus important for both the nominator as well as the observer/nominee to understand the risks associated with his appointment.
Observers v nominee directors
As compared to observers who are appointed due to contractual obligations, while the genesis of their appointment may lie in a contract, nominee directors are appointed by following the provisions of the Companies Act, 2013 (Act). Section 149 read with Section 161(3) of the Act recognizes the appointment of nominee directors under various situations.
Ordinarily, though not independent, nominee directors are non-executive directors and thus, unlike executive directors, are not employed by the company on whose board they sit. Nominee directors may also be vested with powers to veto certain important actions proposed to be taken by the company. Such powers are not conferred statutorily but find mention in contractual arrangements which are then reproduced in the charter documents of the company. Observers are ordinarily appointed in a company to provide the appointer visibility on the actions by the company pending consummation of a transaction. As opposed to a nominee director who can participate in a board meeting, an observers role is limited to merely observing and reporting his observations to his appointor. Thus, observers are not open to violation by a company of any statutory provisions as the observer’s appointment is not statutory but emanates from a contractual obligation.
However, an observer does not have complete blanket protection from violations. For instance, where he has been appointed as an observer to a listed company, he may be privy to unpublished price sensitive information being discussed at a board meeting, and towards this end come within the definition of a ‘connected person’. He thus needs to be mindful of the provisions of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.
A nominee director, unlike an observer, is exposed to statutory violations – a few of which are set out below. Towards this end, the nominee may keep an eye open to take steps to mitigate risks.
- Companies Act, 2013:
Section 166 of the Act makes it mandatory for a nominee director to avoid a conflict of interest situation as he needs to act in the best interest of the concerned company where he is a director. Accordingly, it could be possible that an action taken by him furthering the cause of his nominator, for instance by exercising a veto right, may be challenged on the basis that the decision (while it may have been in the interest of the nominator) is detrimental to the company. Thus, it would be beneficial for the nominee to not blindly follow the decisions of his nominator in cases where there is a direct conflict with the interest of the concerned company. Not all actions taken by a nominee are open to challenge, they would depend on the facts and circumstances peculiar to each case.
While it is important for a nominee to understand the repercussions of his actions, certain sections of the Act, besides penalizing the corporate entity, also penalizes ‘officers in default’. On the face of it, a nominee being a non-executive director does not fall within the ambit of the aforesaid definition unless he did not object or explicitly consented to a contravention under the Act, or consented to fall under the definition of ‘officer in default’.
It is further important for the nominee not to be appointed as key managerial personnel of the company as the statutory safeguard afforded to him by Section 149 (12) of the Act will wash away. In terms of the above section, a non-executive director, not being a promoter or a key managerial personnel cannot be made liable for acts pertaining to the company except in limited circumstances where such act had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.
The aforesaid statutory safeguard has also been recognized in a recent circular issued by the Ministry of Corporate Affairs which has clarified that non-executive directors, not being whole-time directors who are involved in the day to day activities of a company must not be unnecessarily arrayed in any civil or criminal proceedings unless the criteria under Section 149(12) is met.
- Other laws
Directors may be liable to prosecution under other laws, including the Negotiable Instruments Act, 1881, Factories Act, 1948 and other labor laws, Income Tax Act, 1961, foreign exchange regime, and securities laws. While the courts have generally been cautious in interpreting the applicable provisions of the above laws to ensure that prosecution can continue only against directors who were in charge of the day-to-day affairs of the company or those who had committed the impugned act. There are judicial decisions that have stated that non-executive directors cannot be said to oversee the day to day affairs of the company. A nominee director, who is a non-executive director, will be exonerated if he is able to prove that the act was committed without his knowledge and had exercised all due diligence to prevent the exercise of such offence.
- Resignation
While the above actions will help mitigate liability during the term of the nominee director, liability post-termination can also ensue. It is imperative that when he resigns from his office, he intimates the fact of his resignation to the company and the company does likewise to the statutory authorities. By doing this, the director, from the date of his resignation, may be protected from statutory violations where the cause of action has arisen post his resignation.
- Indemnities and insurance
The nominee must consider obtaining an indemnity from the company for protecting such nominee for any liability arising out of default, negligence, malfeasance, etc. such director is accused of. The Act recognizes that every officer of the company may be indemnified out of the assets of the company against any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favor or in which he is acquitted or in which relief is granted to him by the court or tribunal.
Similarly, the nominee may also insist the Company to take a Directors and Officers Liability Insurance which may provide cover for the personal liability of directors and officers arising due to wrongful acts in their managerial capacity. Such insurances may also provide defense costs payable in advance of final judgment.
Understanding the evolution and efficacy of RERA
Authored by Amaresh K Singh, Rashi Arora and Akanksha Upneja
Real Estate (Regulation and Development) Act, 2016 (Act) was enacted in order to effectively respond to a host of systemic issues in the real estate sector and balance the interest of all stakeholders in this ecosystem. Through this article, we aim to evaluate the journey of the legislation and where it stands today.
The Act seeks to harmonize the jurisdictions of the Centre and the States/Union Territories by vesting the relevant authorities – legislative, executive, and judicial – (Authorities) with requisite competence for carrying out its provisions. Along with setting up the machinery for administering and adjudicating its provisions, the Authorities were further empowered to make regulations and rules under the Act.
While the Act was launched with much fanfare, the initial euphoria appeared to be short-lived. Non-compliances, deviations, and delays in the implementation were punched in the trampoline of the statute, which led to a sluggish rate of progress. The situation was further amplified by rampant delays by states in setting up the relevant Authorities under the Act, lackadaisical functioning of the institutional mechanism and creation of rules in deviation from the Act. It is an established principle of law that where rules are to be framed for “carrying out the purpose of the Act”, such rules cannot travel beyond the Act itself. The Authorities failed to demonstrate any semblance of uniformity in their adjudications, which was against the spirit of the Act.
Implementation of the provisions of the Act was also hampered by a perceived bias towards homebuyers. There were perceptions that in its quest of beneficence to the home buyers, the Act encapsulated provisions that were seen as draconian by real estate promoters. Features such as deterrent penalties, defect liability period, lack of explanations on critical aspects significantly impacted the economic interest of the promoters. IN addition to this, there was significant confusion regarding its applicability – while the Act calls for synchronization with other legislations, inconsistencies remained. A thorough introspection would reveal that the propensity for such delays and transgressions are a manifestation of insufficiency of dialogue amongst stakeholders and lack of will to trigger the appropriate machinery in the resolution of said deficiencies. The Central Government failed to invoke the provisions of Section 91 of the Act which provided for “… incorporation of provisions not inconsistent with the provisions of the Act, for removal of difficulty arising in giving effect to the provisions of the Act, within a period of two years from the date of commencement of the Act.”
In the midst of mounting problems, judicial wisdom and pronouncements stirred the sector and led it on the projectile of progress. Certain judgments and amendments are enumerated hereinbelow, that map such progression.
- The year 2017 proved to be a constitutional litmus test for the Act as various writ petitions were instituted before the Courts assailing its constitutional validi The Supreme Court directed the Chief Justice of Bombay High Court to assign the cases to a particular Bench for adjudication. Reference is also made to the judgment in Neelkamal Realtors Suburban Private Limited Versus Union of India, by and under which the constitutional validity of the Act was upheld by the Bombay High Court.
- The Apex Court in Pioneer Urban Land and Infrastructure Versus Union of India ruled that the Act, Insolvency and Bankruptcy Code, 2016 (Code), and the Consumer Protection Act, 1986 (CPA) have concurrent jurisdictions, which diluted its overall purview and impact. The judgment provided relief to the promoters, in case the allottee is a speculative buyer/or if the Code has been invoked with malicious intent. It further illuminated “… A contract or a term thereof is substantively unfair if such contract or the term thereof is in itself harsh, oppressive or unconscionable to one of the parties. A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder. …” It would be prudent that the Act is considered sacrosanct and followed completely in ‘letter and spirit’.
- In Navin Raheja Versus Shilpa Jain and Others, the NCLAT deprecated the acts of the trigger happy allottees, “… They can also point out that in a real estate market which is falling, the allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/apartment under RERA, but wants to jump ship and get back, by way of this coercive measure, monies already paid by it. … It is clear that it is very difficult to accede to the Petitioners’ contention that a wholly one-sided and futile hearing will take place before the NCLT by trigger-happy allottees who would be able to ignite the process of removal of the management of the real estate project and/or lead the corporate debtor to its death.”
- While trying to extend some relief to home buyers, Supreme Court clarified that the allottees of real estate are deemed ‘financial creditors’ under the Code and are entitled to trigger the Code under Section 7, which led to a deluge of cases at NCLT since even a single allottee was allowed to initiate insolvency against a real estate company. Through the Insolvency and Bankruptcy Code (Amendment) Act, 2020 (Amendment), made applicable from December 28, 2019, a condition was laid down wherein not less than one hundred allottees, or not less than ten percent of the total number of allottees under the same real estate project, whichever is less, could jointly file before the NCLT. Thereafter, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (Ordinance Amendment) of June 5, 2020, provided further relief by including a new section 10A which has practically suspended the applicability of section 7, 9 and 10 of the Insolvency & Bankruptcy Code, 2016.
Undeniably, the legislation had been engineered to be the panacea for problems in the sector. However, despite considerable time having elapsed since its inception, it has got entangled in a web of confusion and lackadaisical implementation. For the sector as a whole, the concurrent jurisdiction of the Act, the Code, and CPA may prove to be a silver lining – if calibrated, juxtaposed and synchronized properly, these will provide multiple forums of redressal and the conjoint effect would provide some semblance of streamlining in the sector.
Real-time market of Electricity in India
Authored by – Partner Apoorva Misra and Associate Soumya Prakash
Real-time Electricity Market (RTEM) is an attempt by the Central Electricity Regulatory Commission (CERC) to create a platform that can help address and balance the power supply-demand scenario in the country. RTEM is an organized market platform to enable buyers and sellers across India to meet their energy requirements closer to real-time operation. It is intended to act as a tool to mitigate and address challenges to grid management due to the intermittent and variable nature of renewable energy generation and help integrate higher quantum of renewable energy resources into the grid.
Key objectives of the RTEM platform
The aim to launch RTEM is to provide an alternate mechanism for the distribution companies to access and manage their power demand on a larger platform. The press release issued by Ministry of Power on the launch of RTEM stated that “The Government of India has set a target of attaining 175 GW in renewable capacity addition by 2022 by driving accelerated renewable penetration pan-India. Shorter bidding time, faster scheduling, and defined processes (e.g. gate closure) are expected to enable the participants to access resources throughout the all-India grid, promoting competition. It would lead to better portfolio management by the utilities with efficient power procurement planning, scheduling, and imbalance handling.”
With the introduction of RTEM in India, generating companies can sell their un-requisitioned capacity in order to enable efficient use of such generating power plants. As reflected from the Statement of Reason (SOR) issued along with the amendment regulations, CERC is of the view that participation in RTEM should not only be limited to those participants who have participated in the day-ahead collective transactions, as in cases of long term PPA holders who typically self-schedule their capacities on a day-ahead basis. Therefore, CERC expects the State Commissions to implement Scheduling, Metering, Accounting and Settlement of Transactions in Electricity (SAMAST) in the states to let intrastate entities participate in RTEM.
Additionally, generators having long term PPAs with distributing companies can be allowed to participate in RTEM as this would help distribution companies to address and manage the variability of RE generation. Besides, on the issue of ramping up constraints (increasing the generation capacity) as highlighted by the stakeholder, CERC is of the view that the generating companies should consider and submit the bids for the quantum of power to be injected after considering ramping and other technical capabilities. Regulations have been amended to allow the generating companies with long term PPAs to access the power market through RTEM for transacting their un-requisitioned surpluses.
In this regard, CERC has provided that the generating companies whose tariff is determined under section 62 of the Electricity Act, 2003 (Act) and are willing to participate in this market, will have to share the net gains (after accounting for the energy charge) with the distribution companies in the ratio of 50:50 subject to a ceiling of share of 7 paise/kWh to the generating company and the balance to the beneficiary. This mechanism aims to provide adequate compensation to both buyers and sellers participating in the market. The distribution companies also have the option to sell power in the RTEM for which the entire net gains will be retained by such distribution company. However, generating companies falling under section 63 of the Act, will have to sign a supplementary PPA based on mutual agreement between the generator and the buyer.
Functioning of the RTEM
CERC vide a suo-moto order dated May 28, 2020, stipulated methodology of allocation of transmission corridor to the power exchanges for RTEM. National Load Despatch Centre (NLDC) has been entrusted with the responsibility to announce the available transfer capacity for RTEM transactions. Both the power exchanges, therefore, will have to allow trading of electricity considering the notified available transfer capacity. The initial market clearing volume derived in this process shall be submitted to NLDC, which shall verify the combined volume cleared in both exchanges against the available transfer capacity for RTEM. If the combined cleared volume of both the power exchanges is within the available transfer capacity for RTEM, transaction will be allowed by NLDC. However, in an event the combined volume exceeds the available transfer capacity for RTEM, the allocation of available corridor margin between the two power exchanges shall be in the ratio of the initial market clearing volume of RTEM in the respective power exchanges. The power exchanges shall thereafter submit the final trades in conformity with the available corridor margin as provided by the NLDC. It is intended that this entire process will be completed within a single time block i.e. within 15 minutes.
Further, CERC has provided detailed instructions on how RTEM trading is to be conducted and ordered for the complete records of transactions on monthly basis to be compiled and examined by the NLDC. With the approval from CERC, the Power Exchange India Limited (PXIL) and Indian Energy Exchange (IEX) had started the RTEM trading platforms for electricity transactions from June 1, 2020.
How does the platform work?
As per the regulations and guidelines, RTEM would be opened every 30 minutes in a day, based on double-sided closed auction with uniform price. The concept of ‘gate closure’ has been introduced for bringing in the desired firmness in schedules during the hours of market operation. Buyers or sellers shall have the option of placing buy or sell bids for each 15-minute time block.
There will be 48 auction sessions during the day with delivery of power within one hour of closure of the bid session. This would aid distribution companies to manage power demand-supply variation and meet 24×7 power supply needs in a better manner.
Along with the implementation of RTEM, detailed rules with provisions relating to price discovery mechanism, timelines, bidding formats, enabling generators to buy back power in case of forced outage, etc. are to be prepared suitably by the power exchanges as per the amended Regulations. Till the issuance of such procedures, the distribution companies are required to follow the current practice if they so choose to sell their share of capacity in a generating station in the RTEM. Therefore, appropriate mechanism is awaited to be issued by the power exchanges for stable payment structure so that the initiative taken is not misused and inefficiencies are addressed.
Conclusion
By introducing RTEM, India has joined the league of a handful of nations to have such a market. While the generating companies and distribution companies can manage their power supply and purchase arrangement more optimally, it will likely result in the optimization of power purchase cost and serve the consumers with a reliable supply of power. RTEM will not only provide easy access for sale and purchase of electricity throughout the country but will also be a platform for the trade of power, which will augment sale of electricity with the neighboring countries by creating a common pool for cross border market.